Assessment Can’t Be Reopened Based On Another Director’s Disclosure Of Income Differently Received: Bombay High Court

The Bombay High Court has held that the fact that a different director of the same company disclosed the income received in a different way cannot be used as justification to reopen the assessment.

The division bench of Justice Dhiraj Singh Thakur and Justice Kamal Khata observed that the reopening of the assessment was based on a change of opinion, conjectures, and assumptions, as well as blindly relying on information and borrowed satisfaction.

"It is an imperative duty of the authorities to be updated with the law and to apply it to the case at hand before taking decisions and passing orders. Feigning ignorance of the law by authorities only increases the burden on the courts," the court said.

The petitioner/assessee was a director of Cinepolis India Pvt. Ltd. and was assessed tax in Ichalkaranji, Kolhapur. In 2007, the petitioner collaborated with the Cinepolis Group to set up Cinepolis India and acquired certain shares and irrevocable vested rights to equity in Cinepolis India. In Financial Year 2013–14, the petitioner transferred the equity shares and rights in Cinepolis India under a settlement agreement. The petitioner incurred expenses for lawyers, chartered accountants, escrow agents, etc. for the said transaction.

The petitioner filed his income tax return for the fiscal year 2014-15, in which he disclosed the proceeds received from the transfer of equity shares in Cinepolis India under the heading "Capital Gains."The petitioner claimed a deduction of legal expenses under the heading "Cost of Improvement," and the return was duly processed under Section 143(1).

On July 11, 2016, a notice was issued to the petitioner for scrutiny. The petitioner submitted the required information and documents with a detailed explanation as regards the acquisition and transfer of equity shares in Cinepolis India. The AO accepted the explanation and, after being satisfied with the information and documents, passed an order accepting the total income.

The petitioner was issued a reassessment notice to reopen the assessment.

The petitioner contended that the reopening of the assessment was made beyond four years without demonstrating any failure on the part of the petitioner to disclose material facts. No new material was mentioned in the notice.

The court held that the AO has not specifically mentioned in the order what the tangible material is to conclude that there was an escapement of income. The AO has also failed to verify what material fact the assessee has failed to disclose fully and truly.

Case Title: Deepak Marda Versus The Income Tax Officer

Case No: Writ Petition No. 8010 Of 2022

Citation: 2023 LiveLaw (Bom) 122

Date: 15.02.2023

Counsel For Petitioner: Mihir Naniwadekar

Counsel For Respondent: Suresh Kumar

Click Here To Read The Order